Nonsolicitation provisions, which prohibit a party from soliciting another party’s employees, are a common feature in a variety of commercial contracts and employment agreements. Provisions can vary widely in scope and complexity and can serve a number of different purposes, including to (1) protect confidentiality and intellectual property, (2) protect investment in employees and prevent damages from an employee’s exit, and (3) for service providers, prevent customers from replacing a provider with the provider’s own employees. However, nonsolicitation provisions face a number of common objections and legal limitations on enforceability that should be considered in drafting and negotiation.
Common Objections and Practical Impediments to Nonsolicitation Provisions
Because nonsolicitation provisions are restrictive covenants that often survive beyond an employment or contractual relationship, the provisions routinely face objections from employees, contractors, and counterparties in commercial negotiations and other practical impediments to their use. The following are some common objections and impediments to nonsolicitation provisions:
- Employees typically object to nonsolicitation provisions in employment agreements, so the use of the provisions can cause workforce issues.
- For companies subject to nonsolicitation provisions, especially larger organizations, it can be difficult to abide by nonsolicitation provisions because separate divisions unaware of the restriction may innocently hire restricted employees. Therefore, many large employers refuse to accept such provisions or insist on broad carve outs that reduce their effectiveness.
- Reciprocal provisions are frequently requested in commercial agreements, but such provisions can handcuff employers with significant workforce needs and a limited pool of potential employees to fill those needs.
Legal Issues for Nonsolicitation Provisions
Nonsolicitation provisions must be drafted with care to mitigate the risk of enforceability challenges and to ensure that a protected party has adequate recourse under an agreement in the event that the provision is breached. Significant legal issues to consider include the following:
- Although nonsolicitation provisions in commercial vendor arrangements do not receive the same level of scrutiny as noncompete provisions in agreements directly with employees, state law still controls their enforceability, which can vary widely. For example, California only enforces nonsolicitation provisions in limited circumstances, while many other states generally enforce nonsolicitation provisions, depending on their scope.
- Recognizing the enforceability issues, it is important to include severability and blue pencil provisions along with nonsolicitation provisions and, to prevent future solicitation efforts, include affirmations that nonsolicitation provisions are enforceable by injunctive relief.
- To support enforceability, it is important to limit the scope of the nonsolicitation provisions, the length of the nonsolicitation provision, and the number of employees covered. We will discuss those and other specific issues in the next Contract Corner.